The Boss Knows Best: Directors of Research and Subordinate Analysts

57 Pages Posted: 9 Dec 2016 Last revised: 30 Dec 2017

See all articles by Daniel Bradley

Daniel Bradley

University of South Florida

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

Date Written: December 29, 2017

Abstract

Research departments are managed by Directors of Research (DORs). Subordinate analysts working for higher quality DORs provide superior earnings forecasts that elicit stronger market reactions, better investment recommendations, and have better career outcomes. For the broker, higher quality DORs drive more trading commissions. Economically, analysts benefit the most from DOR-analyst industry alignment resulting from DORs’ former analyst experience. We provide several tests to mitigate endogeneity concerns and explore various mechanisms to explain these results. Overall, our paper identifies a unique channel whereby industry-specific and general human capital of top management filters through to individual subordinates and consequently improves organizational performance.

Keywords: Directors of Research, Analyst Earnings Forecasts, Analyst Recommendations, Broker Resources, Trading Commissions, Industry Experience, Industry Knowledge, Management Access, Human Capital

JEL Classification: G20, G23, G30

Suggested Citation

Bradley, Daniel and Gokkaya, Sinan and Liu, Xi, The Boss Knows Best: Directors of Research and Subordinate Analysts (December 29, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2882267 or http://dx.doi.org/10.2139/ssrn.2882267

Daniel Bradley (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Sinan Gokkaya

Department of Finance, Ohio University ( email )

207 Muck College of Business
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

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